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PROPOSAL: INVESTMENT COMPANY CONTROLS AND DISCLOSURES
It is proposed that the Company’s Bylaws be amended by
adding a new section to Article VIII – General Corporate Matters, to state
the following:
Section 10: The corporation
shall conduct its business as an investment company subject to the
Investment Company Act of 1940.
SUPPORTING STATEMENT
The purpose of this
proposal is to require separate and more effective management of what has
become two distinct businesses: a food industry operation which has stopped
growing, and a securities portfolio which has continued growing. With a
steadily increasing amount of shareholder assets simply accumulating over
decades in an unused reserve fund -- reaching $282 million or 69.5% of total
corporate assets at March 31, 2002 ‑‑ Farmer Bros. appears to have become a
de facto investment company, but without the benefits of being
registered as one.
Registering as an
investment company and complying with the Investment Company Act of 1940
("ICA") will provide shareholders with significant benefits for their fund
portfolio, including the regulatory oversight of the U.S. Securities and
Exchange Commission and potentially more favorable tax treatment. Most
importantly, the ICA establishes:
·
clearly defined fiduciary responsibilities of independent
directors (who are not "interested" as defined by the ICA) for safeguarding
shareholder interests;
·
independent director responsibility for retaining
professionally competent management of the Company’s investment assets;
· detailed,
thorough reporting of all investments, including performance; and,
·
control and disclosure of expenses and relationships
associated with the management of investment assets.
Without ICA compliance, as
the Company is now conducted, public shareholders do not have sufficient
information to know how well or badly their assets are being managed. This
is not acceptable.
Compliance with the ICA
should also encourage a more focused attention to the Company’s coffee
processing and food distribution enterprise. Viewing these operations as a
separately managed entity with its own strategic direction should enhance
the ability of the Company’s managers to realize the full potential of those
businesses. It will also make these operations more visible and
understandable to the Company’s public shareholders.
Finally, compliance with
the ICA should be expected to encourage management’s consideration of
strategic alternatives for restructuring the Company’s separate operations.
This proposal is not intended to advocate a particular restructuring
objective, whether distributing cash, buying back stock, acquiring
additional businesses, spinning off either the investment fund or business
operation, or selling the Company. However, we believe that this proposal,
if approved by shareholders, would lead to an independent board giving
rigorous consideration of all relevant alternatives for enhancing
shareholder value.
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